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Analyst: Hog Producers Be Ready for Action

Summer month hog prices have rallied from the mid-$60s to the upper $70s and appear, as of late, to have run out of gas. After the hog prices suffered significant losses through early October, futures have since rebounded and are entrenched in an uptrend. However, so is the U.S. dollar. Exports comprise roughly 20% of pork demand, and with daily slaughter averaging over a hefty 435,000 per day, it becomes more challenging to have a long-term, friendly price outlook.
 
We encourage hog producers to treat summer futures months defensively. They are priced roughly $12 to $14 premium to the cash index as well as front month futures. In this environment, a sell-off could quickly ensue, should prices begin to break support levels. So far, so good, as price setbacks since October have proven an opportunity for buyers. However, we don’t see the fundamental catalyst for an upturn in the meat complex with the rising dollar, ample inventories, and good demand as indicated on last month's Cold Storage Report, which indicated a larger disappearance year over year. Yet, we question how long that can last, especially now that the holidays are behind us.
 
Producers should consider hedging with futures, buying puts, or using a fence strategy, which consists of buying a put and selling a call. Discuss these strategies with your adviser. Be prepared. Often when markets make a move, it occurs so quickly that it is hard to implement a strategy.
 
If you have questions or comments, or if you would like help in creating a balanced strategy for your operation, contact Bryan Doherty at Top Farmer Intelligence (800/TOP-FARM, Ext. 129).
 
Futures trading is not for everyone. The risk of loss in trading is substantial. Therefore, carefully consider whether such trading is suitable for you in light of your financial condition. Past performance is not necessarily indicative of future results.

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